Law Practice Management

One of 2017’s biggest legal trends is the upswing in law firm merger activity. Altman Weil’s MergerLine site reports 76 deals announced through 2017 Q3, the most ever recorded through three quarters, with a prediction that there might be 100 mergers by year-end, surpassing the 2015 high of 91.

Firm mergers raise lots of conflicts issues, and some mergers are scuttled when they can’t be resolved. Another issue that can be troublesome in the courtship stage involves the considerable amount of financial information disclosed, namely: How can firms that are exploring a merger guard against the possibility that revealing financial information to each other might lead to poaching each other’s top rainmakers in the event that the merger doesn’t go forward? Can firms enter into non-solicitation agreements, to alleviate this reasonable concern?

Issue of lawyer mobility

A new ethics opinion from the North Carolina state bar addresses agreements, made as part of merger negotiations, not to solicit or hire lawyers from each other for a specified period of time in the event that the firms decide not to merge.

The ethics issue arises under Model Rule 5.6(a), which prohibits a lawyer from offering or making an agreement that restricts the right of a lawyer to practice after terminating an employment relationship (except for retirement benefits agreements).

The rationale is that agreements that impose practice restrictions after a lawyer leaves a firm limit a lawyer’s professional autonomy; and more important, they limit the freedom of clients to choose a lawyer.

De minimis restriction

The North Carolina opinion reviewed an agreement between two firms exploring a merger. In addition to customary terms barring disclosure of confidential client and proprietary firm information, if the firms decided not to merge, each firm agreed not to:

induce or solicit each other’s lawyers or other employees to join either firm;

hire or engage each other’s personnel as partners or counsel;

for the term of the merger exploration agreement (one year) and for two years after termination of the agreement.

The Committee noted the reality of the merger marketplace, surmising that “the non-solicitation provision was included in the agreement to foster the trust necessary for both firms to disclose financial information about [lawyer] productivity” without fear that if negotiations fell apart, one or both firms would try “to lure highly productive lawyers or ‘rainmaker’ lawyers away” from each other.

The proposed agreement was permitted under the Tar Heel State’s adoption of Rule 5.6, the Committee said, viewing it as a matter of first impression. First, the agreement imposed only a de minimis restriction on the mobility of the two firms’ lawyers. “If there is a reasonable business purpose,” the Committee said, a “restriction that impacts lawyer mobility may be permissible.” This one was for a relatively short, defined period of time, and only affected employment with one other law firm.

In addition, the Committee said, the restriction on lawyer mobility did not impair client choice: it would not prevent or inhibit a client from following a lawyer who left one of the firms in order to take a position with a firm that wasn’t subject to the agreement.

The Committee cited the ethics rules as “rules of reason” (as noted in their scope section). Under that rubric, and with its limited impact, the “no poach” provision passed muster.

Any more out there?

I’m not aware of other ethics opinions that deal with this aspect of Rule 5.6(a), or a no-poach clause. If your firm is part of the hot merger marketplace, it would be wise to tread carefully and seek advice before including such a clause in your agreement with a potential merger partner. And of course, as always, check your jurisdiction’s version of the rules.

If the clerk of courts e-mails you an order that your client must pay $1 million in attorney fees to the opposing party, but your spam filter catches the e-mail and then deletes it after 30 days without alerting you, and you therefore fail to appeal the order in time — well, your client may be out of luck, as a Florida court of appeals ruled recently. (There is a motion for rehearing pending.)

Spam canned?

The ruling thus far is a cautionary tale and shines a light on some ethics duties as they might apply to your process for handling and keeping on top of spam e-mail — especially the duties of diligence (Model Rule 1.3) and competence (Model Rule 1.1, and see cmt. 8 on technology).

The facts: Company sued Utility Authority, and Company won. Company’s Lawyer moved for attorney fees, and after more than a year, the trial court granted them — reportedly as high as $1 million. It’s worth noting that during the time that his client’s fee motion was pending, Company’s Lawyer had the firm’s paralegal check the court’s on-line docket every three weeks for a ruling.

When the court finally issued the ruling, the clerk e-mailed it to all counsel. Technology experts who later testified said that the e-mail server at the Utility Authority’s Lawyer’s firm received the e-mail. But the firm’s e-mail filtering system was configured to drop and permanently delete e-mails perceived to be spam without further alert.

Apparently that’s what happened to the e-mailed attorney-fee order. After 30 days passed without the fee award being paid (i.e. after the time to appeal the order had run), Company’s lawyers contacted opposing counsel.

No relief

The Utility Authority moved for relief from the judgment, arguing that its lawyers didn’t receive the order in time to file an appeal. The trial court rejected the argument, and the court of appeals agreed: this was not “mistake, inadvertence, surprise or excusable neglect,” it held. The Utility Authority’s Lawyer’s firm did receive the order — the equivalent, the court of appeals said, of placing a physical copy of the order in a mailbox. The e-mail just went right to spam, from where it apparently was deleted without further notice.

At the hearing on the motion, the law firm’s former IT consultant testified that he advised against that configuration; the firm rejected the advice, as well as advice to get a third-party vendor to handle spam filtering, and advice to get an online backup system that would have cost $700-1200 per year. Financial considerations played a part in these decisions, the court found.

The decision to use this filtering configuration despite warning was a conscious decision to use “a defective e-mail system without any safeguards or oversight in order to save money. Such a decision cannot constitute excusable neglect,” said the court of appeals.

Adding further sting, the court noted the Company’s Lawyer had a paralegal regularly check the court’s online docket during the long pendency of the fee motion. If the Utility Company’s Lawyer had done something similar, the court said, he would have received notice of the fee order in time to appeal. “The neglect” of that duty “was not excusable.”

Spam: not tasty but good to check

The harsh result here may yet be ameliorated if the court of appeals grants rehearing. In the meantime, however, the scary scenario points to the need to pay attention to your firm’s technology and processes for handling spam. And old-fashioned procedures like checking the court’s docket can also help avoid an unpalatable spam situation.

That may be the trend of the future in Biglaw, but a much more modest marketing effort recently landed an Ohio lawyer in disciplinary trouble.

No Justice, no peace?

According to the opinion, from 1981-1997, the lawyer in question practiced with another attorney, who eventually became (and continues to be) a Justice of the Ohio Supreme Court. Fast forward to 2015. With the permission of the Justice, the lawyer began using their old firm name, including on business cards, and hung a sign outside the office saying “O’Neill & Brown Law Office (Est. 1981).”

That only lasted for a few weeks before the local bar association began investigating. After the disciplinary authorities advised the Justice that the sign violated Ohio ethics rules, the Justice instructed the lawyer to remove his name from the sign, and eventually the lawyer did so.

False and misleading

The Ohio Supreme Court (with the Justice in question not participating) agreed with the Board of Professional Conduct that the firm name on the sign and business card, and the reference to the firm having been established in 1981 were false or misleading communications that violated Ohio’s version of Model Rule 7.1. The court also found a violation of Rule 7.5(c), which prohibits using a judge’s name in a firm name or other firm communication, unless the judge regularly and actively practices with the firm.

By a 4-3 vote, the court imposed a two-year stayed suspension on the lawyer. A significant aggravating factor contributed to the sanction: this wasn’t the lawyer’s first rodeo — he’d been disciplined several times before, according to the opinion, including a previous suspension for threatening a judge who served as chair of the local bar grievance committee. But in mitigation, the court noted that his conduct “did not involve the provision of legal services,” that no clients were harmed, and that the Justice participated in the decision to use the “O’Neill & Brown Law Office” name on the sign.

The three-judge minority would have imposed an “indefinite” suspension, which in Ohio is a term of at least two years.

Hot on the heels of the publicity for Brian Cuban’s new book, “The Addicted Lawyer: Tales of the Bar, Booze, Blow and Redemption,” comes the searing account in the New York Times of the 2015 death of a former IP partner at Wilson Sonsini Goodrich & Rosati, who secretly battled drug addiction and reportedly died of a bacterial infection that often afflicts intravenous drug users.

Cuban’s book (he is the brother of billionaire Dallas Mavericks owner Mark Cuban) is, by all accounts, a story of perseverance and recovery; Cuban redeemed his life, although he does not practice law any longer.

But the New York Times article, authored by the Wilson Sonsini partner’s ex-wife, is a harrowing call to arms about the need to do a better job — in the organized bar, in BigLaw, small law, corporate law and everywhere else — of identifying and helping addicted lawyers.

“Last call” — dial-in to a work conference

The Wilson Sonsini partner, identified in the NYT article only as “Peter,” is described as successful, driven and work-obsessed. After a stellar law school career, in which he graduated first in his class, he replicated that success in a legal career that saw him regularly working 60-hour weeks over the next 20 years.

His ex-wife, with whom Peter maintained good relations, found him dead on the floor in his house, near half-filled syringes, a tourniquet, and crushed pills. She had no idea that he was struggling with a severe addiction — reflected in detailed notes the lawyer kept of the times and amounts of his drug injections — although she writes that she noticed wild mood-swings in the months before his death, and voice mails consisting of “meandering soliloquies.”

Most poignantly, the lawyer kept working right up to the end. The last call he made from his cellphone, his ex-wife wrote, was to dial in to a work conference call, even though he was “vomiting, unable to sit up, slipping in and out of consciousness.”

At Peter’s memorial service, his ex-wife wrote, while a weeping young associate eulogized the partner he had come to know, firm lawyers were bent over their own cellphones, tapping out e-mails — unable to put down their work even then.

Grim statistics

The statistics on lawyers and alcohol abuse are grim, and well-known. More than a fifth of all lawyers are problem drinkers, according to last year’s joint report of the Hazelden Betty Ford Foundation and the American Bar Association Lawyers.

The statistically-robust report drew responses from 12,825 licensed and practicing lawyers from 19 states. But only 25 percent of respondents answered questions about drug use — out of fear of answering, according to the study’s lead author. Quoted in the NYT story, he said that “I think the incidence of drug use and abuse is significantly underreported,” because in contrast to alcohol use, drug use is illegal.

In his book, Cuban describes snorting cocaine in his former law firm’s bathroom, to keep going after boozing it up and using drugs the night before. Other memoirs, like “Girl Walks Out of a Bar,” by a former Pillsbury Winthrop lawyer, underscore the reality of lawyer drug addiction.

What is the profession doing to help?

Accounts like Cuban’s and the death of the Wilson Sonsini lawyer spotlight the need for the legal profession to step up its efforts to help. The ABA’s Model Rule on Continuing Legal Education calls for just one credit of CLE every three years on mental health or substance abuse.

Some states, like my home state of Ohio, have moved away from a specific substance-abuse requirement; since rule amendments in 2014, many subjects qualify to meet our “professional conduct” CLE requirement, so a lawyer never needs to have any substance abuse CLE.

Yet, in the days before that change was made, when lawyers still needed to get one hour of substance abuse training every two years, each time I spoke on ethics at a CLE seminar, I observed at least one lawyer going up afterwards to the person who had spoken on substance abuse, and speaking earnestly. These were lawyers in trouble — and we need to do more to help them.

Jurisdictions like Illinois seem to be moving in the right direction, as reported by Chicago ethics lawyer Allison Wood. Under amended rules, Illinois lawyers are now required to take one hour of mental health and substance abuse CLE as part of their six-hour professional responsibility requirement. Both the directive to have at least some substance abuse training, and the size of the PR requirement are laudable.

Law firms also have a huge role to play — there’s room to ask whether firm culture “enables” alcoholism. De-emphasizing the historic link between lawyering and drinking , including at firm events, would help. So would increasing access to law firm employee assistance programs, as highlighted in guidelines here, from Massachusetts “Lawyers Concerned for Lawyers.”

And as I have done before, here’s a state-by-state list of links to lawyer assistance organizations. No problem is ever made worse by seeking help.

Being inexperienced can contribute to getting into disciplinary trouble, but it can also be a mitigating factor in a bar disciplinary case. That’s the message of a recent opinion of the Oklahoma Supreme Court, which imposed a six month suspension from state practice as reciprocal discipline on a lawyer who had already been suspended from federal bankruptcy court practice for five years.

Raising the risk?

Something like 37,000 students likely graduated from law school this year; that’s a lot of newly-minted JD’s coming into the world of practice. And while they might know more about legal ethics when they graduate than they ever will again (as I tell the law students I teach as an adjunct ethics prof), it’s also surely true that simple inexperience can play a role in going astray and getting into disciplinary trouble.

For one thing, with the legal job market being what it is, many new lawyers will likely be hanging out their own shingles. There are lots of opportunities for a novice to get mentoring, advice, and hand-holding from more-veteran members of the bar.

But failing to take advantage of those resources can mean that an inexperienced solo lawyer is stuck in an echo-chamber, without the corrective that a more-seasoned viewpoint can contribute. And even in a firm, it’s easy to make a mistake if the proper supervision is lacking.

Sooner State of confusion

The lawyer in this disciplinary case was admitted to the Oklahoma bar and started practicing in 2013. About 18 months later, she got her first client — a couple who were attempting to set aside a bankruptcy court order.

Her attempt on the couple’s behalf went badly wrong, and then spiraled out of control: the bankruptcy court found the lawyer’s set-aside motion to be without any legal or factual basis; she missed the deadline to supplement the filing; and then she sued the trustee, the judge, the state courts of two counties and the layers representing the creditors.

The court dismissed that suit with prejudice, and the creditors moved for sanctions against the lawyer in the bankruptcy court, asserting among other things that she had filed frivolous litigation, misrepresented facts, and had threatened the bankruptcy trustee and attorneys with criminal prosecution in bad faith.

Before the sanctions hearing, the lawyer entered into a settlement, accepting a five-year suspension from practice in both Oklahoma bankruptcy courts.

Inexperience counts

It’s a little-known fact that drawing professional discipline in one jurisdiction where you are admitted to practice (including before federal courts), can bring reciprocal discipline in other jurisdictions where you are admitted. That’s what happened here.

In response to the state bar’s disciplinary charges, the lawyer creatively argued that because her bankruptcy suspension was a result of an agreed settlement and not an “adjudication,” there was no basis for reciprocal state discipline. The Oklahoma supreme court swept that argument aside, and held that her conduct violated the Sooner State’s versions of Model Rules 1.1 (competence); Rule 3.4 (unfairness to opposing parties and counsel; and Rule 8.4(d) (conduct prejudicial to the administration of justice.

But in weighing the appropriate reciprocal discipline, the court significantly took as a mitigating factor that the lawyer “was new to the practice of law and without supervision or training.” Without intending to hold “new legal practitioners to different standards from more seasoned lawyers,” the court nonetheless took account of the fact that the lawyer “was practicing on her own with little prior training or supervision and refused to ask for help.”

Thus, although acknowledging that the lawyer exceeded the bounds of zealous advocacy, and “displayed a lack of competency and insolence in the practice of bankruptcy law,” the court imposed only a six-month suspension from practice.

Don’t let this happen to you

If you’re a newbie, recognize the limits of your knowledge and get help. Don’t count on your inexperience to save you from harsh professional discipline; you don’t want to go there in the first place. If you practice by yourself, take advantage of all the formal and informal mentoring and training resources available via state and local bar associations and law schools.

Just last month, we wrote about a North Carolina draft proposal that would ease the way via its ethics rules for Avvo and other on-line legal services to operate there. Now, after a joint opinion from three New Jersey Supreme Court committees, the Garden State has turned thumbs down on such law platforms, citing issues including improper fee-sharing and referral fees.

Nix on Avvo, LegalZoom, Rocket Lawyer

The joint opinion bans participation in Avvo’s programs because of the “marketing fees” it collect from lawyers in exchange for participating in two of its offerings: “Avvo Advisor,” in which clients talk to lawyers for 15 minutes for $40, with Avvo keeping $10; and “Avvo Legal Services,” where clients pay a flat fee to Avvo for access to affiliated lawyers, and then Avvo pays the lawyer net of its own fee.

The committees found that this arrangement violates New Jersey’s version of Model Rule 5.4(a), barring fee-splitting with non-lawyers, and it mattered not that Avvo called its cut a “marketing fee”: irrespective of its label, said the committees, “lawyers pay a portion of the legal fee earned to a nonlawyer; this is impermissible fee sharing.” In addition, said the committees, these payments signal a “lawyer referral service,” and payment of an “impermissible referral fee” under New Jersey’s Rules 7.2(c) and 7.3(d).

Icing the cake, the committees also raised a trust account issue, saying that Avvo’s practice of holding the lawyer’s fee until the conclusion of the matter violates the attorney’s duty to maintain a registered trust account and to hold client funds in it until the work is completed.

Avvo wasn’t the only on-line platform tagged — Rocket Lawyer and LegalZoom also were placed off-limits to New Jersey lawyers, but for a different reason. While they do not require payment from lawyers to participate, and do not share the clients’ monthly subscription fees with lawyers, Rocket Lawyer and LegalZoom are “legal service plans” that have not been registered with or approved by the New Jersey Supreme Court, said the committees. That places them outside the pale, even while not violating the fee-sharing prohibition.

A notice to the bar from the supreme court’s administrative office accompanied the joint opinion, listing the 46 state-approved legal service plans, including those offered through unions and government agencies.

What next?

As we’ve noted, the ABA’s Futures Commission sees the continuing onslaught of on-line platforms as something that is here to stay. Nonetheless, this New Jersey ethics opinion joins other cautionary or negative ones issued by regulators in Ohio, Pennsylvania and South Carolina. Against that backdrop, North Carolina’s recent consideration of rule changes may appear to be the outlier (although an Oregon state bar association task force also recently recommended ethics rule amendments that would be friendly to on-line service legal platforms).

Avvo responded to the New Jersey opinion, telling the New Jersey Law Journal that it is “attempting to address the pressing need for greater consumer access to justice, and we will continue to do so despite this advisory opinion.”

Will market pressure become a tsunami that will eventually sweep legal ethics considerations away? It may take awhile to tell, but until then, look for more ethics opinions to come out with differing views, potentially creating a patchwork of inconsistent state approaches. We’ll be watching with great interest.

Practicing law out of a “virtual law office” (“VLO”), without being tied to the overhead expense of a brick-and-mortar facility, is increasingly attractive to lawyers in many stages of their careers: junior lawyers hanging out their shingles in a tough market; senior lawyers who want to keep practicing, but in a flexible format; and mid-career lawyers who are attracted to the increased options for leveraging their practices by using cutting-edge technology.

Ohio’s Board of Professional Conduct is the latest to issue an ethics opinion on the subject. But by not discussing an inherent issue — multi-jurisdictional practice and possible unauthorized practice — the Ohio opinion leaves some gaps.

VLO: OK in OH

The Ohio Board’s opinion lays out the basic concepts of a VLO: it typically involves communicating with clients “almost exclusively” in a non-face-to-face way, using various forms of technology, including secure internet portals, and without “a physical office where the lawyer works, meets with clients, and stores client files.” Following the lead of several earlier ethics opinions, including from Florida, Pennsylvania, North Carolina and Washington, the Ohio Board in general greenlights VLO’s for lawyers in the Buckeye State.

The Board pointed to several ethics duties inherent in operating a VLO:

discussing at the outset of the representation the office technology the lawyer uses;

keeping up adequate communication with the client, “regardless of the type of technology used;” and

making reasonable efforts to ensure that technology vendors are providing their services “in a manner compatible with the lawyer’s professional obligations,” as required by Ohio’s version of Model Rule 5.3(a).

“Office address” requirement

Some jurisdictions — but not Ohio — have bar rules or court rules requiring a lawyer to have a “bona fide office,” interpreted as traditional office space. Such rules clearly limit the ability to operate through a VLO. But even without a bona fide office requirement, a corollary issue lurks: most state versions of Model Rule 7.2(c) require legal marketing materials to include the “office address of … [a] lawyer … responsible” for the advertising.

The Oho Board resolved that issue, saying that the language does not require a physical address, and can also include the lawyer’s home address, the address of shared office space or even a registered post office box. In order to avoid being misleading, lawyers who have untethered themselves from physical offices must state in their advertising that they are able to meet in person with clients “by appointment only.”

VLO’s and UPL/MJP

The Ohio Board’s opinion doesn’t discuss multi-jurisdiction practice, or when an Ohio lawyer’s operation of a VLO might risk crossing the line into the unauthorized practice of law (“UPL’) in another state. That’s somewhat puzzling — first, because Model Rule 5.5(a) (as adopted in Ohio and elsewhere), bars lawyers from practicing in a jurisdiction in violation of regulations in that jurisdiction; and second, because the Board previously dealt with the flip side of the VLO/UPL issue. In 2011, the Board opined that out-of-state lawyers who represented Ohio residents through a VLO had impermissibly established a “systematic presence” in Ohio for the practice of law, in violation of Ohio’s version of Model Rule 5.5(b). The Board said that “‘systematic and continuous presence’ includes both physical and virtual presence in Ohio.”

Most jurisdictions have adopted some version of the rule prohibiting out-of-state lawyers from establishing a systematic presence in that jurisdiction. Therefore, if another state were to adopt Ohio’s stance that “systematic presence” includes virtual presence, Ohio lawyers could risk a UPL finding if they provide services to clients in that state through an Ohio-based VLO. That’s a risk that the Ohio Board could have cautioned about.

Ethics opinions from California and Illinois (citing the 2011 Ohio opinion) have discussed the UPL issues with VLO’s.

The ABA’s Task force on E-Lawyering has advised in its Suggested Minimum Standards for Delivering Legal Services On-Line that lawyers operating VLO’s should avoid UPL by serving “only clients who are residents of the state where the firm is authorized to practice, or clients who have a matter within the state where the law firm is authorized to practice.”

That seems like a good way to stay out of border-crossing trouble, and to minimize UPL risks while using technology to engage in virtual practice, with its potential benefits.

Litigation funding is in the news again, with the U.S. Chamber of Commerce spearheading a request to amend the Federal Rules of Civil Procedure to require initial disclosure of all third-party agreements for compensation that are “contingent on, and sourced from, any proceeds of the civil action, by settlement, judgment or otherwise.”

The Chamber joined with 28 other organizations in a letter sent earlier this month to the federal courts’ Rules Committee, saying that its aim is to bring third-party litigation funding out of “the shadows” and to identify “a real party in interest that may be steering a plaintiff’s litigation strategy and settlement decisions.”

The new push follows up on a 2014 proposal that the Chamber and a few other organizations made to the same rulemaking committee, which was rejected. Things have changed since then, the Chamber’s June 1 letter said, citing expansion of third-party funding in the U.S., with several significant players reporting significant and steady growth, and on-line marketplaces opening the way for investors to shop for individual cases to contribute to.

Shift in momentum?

As we reported in February, the U.S. District Court for the Northern District of California became the first court to mandate disclosure of litigation funding that parties in class actions receive from outside sources, under a revision to the court’s standing order. That was followed up in March, when the U.S. House of Representatives passed the Fairness in Class Action Litigation Act of 2017, which likewise would require disclosure of third-party funders in class actions. The bill is now before the Senate Judiciary Committee.

The champerty problem. This old legal doctrine, which seeks to prevent buying and selling lawsuits, still continues to be in play, with at least three state courts of appeals citing it or suggesting it as a viable defense in 2016-17, and a U.S. bankruptcy court in January finding an agreement to be champertous.

Fee-sharing issue. Model Rule 5.4(a) bars almost all forms of sharing legal fees with non-lawyers, with the goal of preserving the lawyer’s independent professional judgment. But some models of third-party litigation funding apparently involve plaintiffs’ counsel repaying the funder’s investment out of the lawyer’s attorney fees, if any.

Confidentiality and conflicts. To the extent that funding arrangements require disclosure of client information to the financier they could raise confidentiality concerns under the ethics rules, as well as privilege issues. And lawyers who have “contracted directly with a funding company may have … duties to it that are … perhaps inconsistent with” the duties of loyalty to the client, including conflicts arising from steering clients to favored funders.

Watch and wait

In a press release, one large litigation funder, Bentham IMF, said that the Chamber’s proposal was misguided, including because the law firms using such financing were assisting under-served and under-funded clients — small-to-mid-size businesses and individuals — who could not otherwise afford to litigate their claims. Bentham also said that the rule amendment proposal was unfairly one-sided, and that defendants should have to abide by similar disclosure rules.

Litigation funding will continue to be a hotly debated issue, and if your clients are involved in civil litigation, these are developments that bear watching. Stay tuned.

Avvo Legal Services has been meeting with North Carolina bar regulators, resulting in a draft proposal that would amend several legal ethics rules and make it easier for Avvo to operate in the Tar Heel State, according to Prof. Alberto Bernabe, a Chicago law professor who has seen some of the relevant documents, and blogged about them last week.

Ethical problems?

Several state legal ethics opinions have recently found client-referral services using an Avvo-like model to be ethically problematic, including opinions from regulators in Pennsylvania, South Carolina, and my home state, Ohio. Rule revisions in Florida now pending for approval by the state supreme court there likewise call aspects of the model into some question.

Some of the identified ethical issues raised by Avvo-like referral services, as identified by various ethics opinions are:

the company — and non-lawyers — control significant aspects of the attorney-client relationship, including functions that can constitute the practice of law (see Model Rule 5.5(a));

the structure can interfere with the lawyer’s exercise of independent legal judgment on behalf of the client (see Model Rule 5.4(c));

the way the fees are managed could constitute or invite commingling of clients’ funds and lawyers’ funds (see Model Rule 1.15(a));

the fee structure makes it difficult to comply with the duty to refund unearned fees at the end of the representation (see Model Rule 1.16(d));

a model where the lawyer is paid only after the representation is concluded makes the fees contingent on the outcome, which can violate the prohibition on contingent fees for certain kinds of cases (see Model Rule 1.5(d));

receiving and holding client funds paid in advance may violate the lawyer’s duty to hold those funds in a trust account (see Model Rule 1.15(c));

although part of the fee paid by the client and kept by the company may be designated as a “marketing fee,” the fact that such fees are calculated as a percentage of the full fee makes the arrangement likely to be impermissible fee-splitting with a non-lawyer (see Model Rule 5.4(a));

the business model can threaten the confidentiality of the lawyer-client relationship (see Model Rule 1.6).

North Carolina considers amendments

In light of these issues, Avvo has tried to allay concerns, including by saying that its model actually comports with ethics rules, and that it is providing advertising that is protected by the First Amendment. (A recent Georgetown Law Journal article by Prof. Bernabe details Avvo’s arguments.)

According to Prof. Bernabe, North Carolina may now be considering a different regulatory approach: amending its lawyer conduct rules to “make it acceptable for lawyers to participate in services like Avvo.”

Documents he has seen include a proposal to amend the fee-splitting rule to permit payment of a portion of the lawyer’s fee to an on-line platform if the amount is a reasonable charge for administrative or marketing services and there is no interference with the lawyer’s independent professional judgment.

Another proposed comment amendment would allow lawyers to participate in Avvo-like rating services without fear of being held in violation of the prohibition against giving something of value in exchange for a recommendation of employment. (See Model Rule 7.2(b).)

Yet another amendment would allow the company to keep the client’s payment until the end of the representation, imposing on the lawyer the obligation of ensuring that such “intermediaries” “adequately protect client funds” — instead of placing such advance payments in the lawyer’s trust account.

Brave New World

Although nothing is certain yet, and the documents that Prof. Bernabe describes are certainly preliminary and might be incomplete, the path that North Carolina appears to be contemplating significantly departs from the road that bar regulators in other jurisdictions have so far taken. Whether acquiescing to market trends — even ones that seem to be irresistible — is in the true best interest of legal consumers and the legal profession remains to be seen.

On-line service providers are here to stay: Entities like Avvo, Rocket Lawyer and LegalZoom now have a presence in some legal market segments, said Martinez, and “they are not going away.” Lawyers must acknowledge this force, and that “they are no doubt innovating in a way that consumers of justice are paying attention to.” Like attorney advertising, which was once derided but is now ubiquitous, on-line service delivery platforms are “now part of the ecosystem.” The challenge is to ensure that these and other technology-driven models meet the standards most critically important to the profession. The Commission report recommends that state courts adopt the ABA Model Regulatory Objectives for the Provision of Legal Services, so that if and when a court examines on-line or other providers (including lawyers), any regulation is guided by the stated objectives. These include such core principles as independence of legal judgment, protection of confidential and privileged information and accessible civil remedies for negligence and discipline for misconduct.

The public needs more from us: The Commission’s report details a huge unmet need for legal services. In some jurisdictions, more than 80 percent of the civil legal needs of low-income people and the majority of middle-income people go unmet — even as new law graduates struggle to find work. “Our efforts have woefully failed” so far, Martinez said, to meet the goal of providing some form of effective assistance for the essential civil legal needs of all people otherwise unable to afford a lawyer — which is the Commission’s #1 recommendation.

We’re trained to be innovation-averse: Our legal training itself makes lawyers resistant to change, and that threatens to leave us behind. We are trained to look at the past, and to avoid unnecessary risk. The traditional service delivery models that we accordingly embrace constrain innovation, and can limit access to justice. Yet, it is crucial to overcome these barriers. “If we don’t shape the future, others will,” said Martinez.

Despite adverse comment from the rank-and-file, conversation about “ABS” continues: Permitting non-lawyer ownership stakes in law firms (aka “alternative business structure”) has generated much controversy; it is currently barred in every jurisdiction except the District of Columbia (although in the state of Washington, a very narrow form is encompassed under its Limited License Legal Technician program). In 2016, the ABA solicited comments on its issue paper on ABS for law firms, including non-lawyer ownership. Based on a lack of data showing that ABS would benefit the public, and being aware of opposition from some, the ABA recommended continued exploration. According to Martinez, the issue is continuing as a topic of discussion at bar association and court meetings, and those interested are watching developments in the UK, where ABS is growing. What should the burden of proof on the issue be, asked Martinez: that there is “no evidence of harm to the public,” or that there is “evidence of benefit to the public”?

What can be done on the local level? Martinez said that lawyer education aimed at helping lawyers and judges understand the benefits of applying technological innovations to the access-to-justice problem was front and center, and that every bar association should be incorporating a futures component into its long-range planning.

Bottom line: we lawyers had better get on board because like it or not, the future is here, and it holds opportunities for the profession and for increased access to justice.

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About this Blog

The Law for Lawyers Today is a resource for law firms, law departments and lawyers needing information to meet the challenge of practicing ethically and responsibly. Here you’ll find timely updates on legal ethics, the “law of lawyering,” risk management and legal malpractice, running your legal business— and more.

About Thompson Hine

For more than a century, Thompson Hine has been committed to excellence on behalf of our clients, our people and the communities in which we live and work. Clients rank us among the top firms in the United States for client service year after year, and we are proud of the accolades we have earned in recognition of our capabilities and leadership.